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  • Tom Hayes' Worldwide Rare Earth Wonderland

    It's not the size of a rare earth elements project resource that determines its success, declares Tom Hayes of Edison Investment Research. In this interview with The Mining Report, he explains that companies will win based on their holdings of heavy and strategic rare earths and their ability to secure funding. With the race on to develop non-Chinese REE sources, he suggests projects likely to end up on the podium.

    The Mining Report: It is now known that China's State Reserve Bureau intends to begin stockpiling medium-to-heavy rare earth elements [REEs], and that China will also strengthen REE export quotas. Will these actions lead to a race to get non-Chinese REE projects into production?

    Tom Hayes: It will. One shouldn't view the general tightening of heavy rare earth elements [HREE] export quotas in isolation, however. It's more relevant to look at actual demand for particular REEs. About 30-40% of Chinese supply is subject to an export quota, but Western demand does not currently meet the amount of REEs approved for export. Reduced export quotas will probably result in Western demand meeting Chinese supply. This, along with China's reform of its REE industry, will probably aid rare earth prices in the long run.

    TMR: What is the nature of this reform?

    TH: China's central government aims to exert control. Lack of central control has resulted in large, illegal REE operations, which have had a widespread negative effect on the environment.

    TMR: Does the scale of these illegal operations suggest some level of political support?

    TH: This support is likely local and not national. It is local corruption that has allowed illegal mining of REEs to expand to its present level.

    TMR: What's your forecast for REE demand for the rest of the decade? And how will changes in demand and supply affect prices?

    TH: Edison doesn't have specific growth forecasts for REEs, but the industry consensus is annual growth anywhere from 3-8% until 2020. What will that mean for the supply and demand of particular REEs? This is an industry that is plagued by misnomers. When REEs were first in the limelight in 2011, when the bubble was forming, there was a complete lack of understanding of what "rare earths" meant.

    Since then, people have begun to understand the difference between light rare earth oxides [LREOs] and heavy rare earth oxides [HREOs]. The industry has now become an even more granular and complex story about the actual supply and demand drivers with regard to particular REEs. When we talk about REE demand growth, we must consider specific minerals among the 16 REEs. To comment on where REE prices are going is not particularly useful.

    TMR: What is it about the heavy and strategic REEs that make them particularly valuable?

    TH: It's really their use in particular applications such as green technologies. Wind turbines are a case in point. Political support for renewable energy sources drives further development of wind farms and, by extension, boosts actual demand for the metals used in those applications.

    TMR: If the average initial capital expenditure [capex] of an REE project is $700 million [$700M], how much of that is the optimum amount companies should have to raise themselves, outside of offtakes and other deals?

    TH: There's a burgeoning strategy behind financing these projects, considering that the equity markets are pretty much dry. Companies are looking for funding from governments, from offtake loans and from strategic partnership loans. From the figures that I've seen, REE projects might expect to get one-quarter to one-third of capex from government agencies and export quota agencies, and maybe another one-quarter to one-half through strategic partner loan agreements.

    This still leaves a considerable shortage, and this is a real challenge for REE projects. It could mean they will remain unfunded until the equity markets pick up and/or investor interest in mining picks up.

    TMR: What's the most interesting American REE project?

    TH: There is a particularly interesting one from the point of view of its mineralogy: The HREO Round Top project in Texas. It's completely different from other REE projects, in that the geology is rhyolitic.

    TMR: What is the significance of that?

    TH: It could lead to a much lower capital intensity. In fact, the very preliminary project work suggests that it could be developed as a heap-leach project, whereby acid is used to drain off the REEs for further refinement. That would be quite a significant alternative to the traditional REE model, whereby large amounts of money are needed to crack and refine these REE metals.

    TMR: How advanced is Round Top?

    TH: It is still in the early stages of metallurgical and mineralogical investigations and drilling.

    TMR: What other American projects to you want to discuss?

    TH: Rare Element Resources Ltd.'s (NYSEMKT:REE) [RES:TSX] Bear Lodge project in Wyoming is another interesting one. The company is working toward a DFS this year. Rare Element has proprietary technology that might allow it to reduce its capital requirements. However, it will take a little bit more work to firm up its ability to create concentrates at an economically viable level.

    TMR: Greenland has been described as the planet's last frontier for metals.

    TH: It could also be considered one of the last frontiers for conservation. Greenland has a political situation that could be quite tricky for the development of a mining industry.

    TMR: Tom, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Mining Report and can be read in its entirety here.

    Tom Hayes has been a mining analyst at Edison Investment Research in London since 2010. He worked previously for the consulting firm Mouchel and has been a lead production geologist and resource definition geologist for mines in Australia and Saudi Arabia. He holds a Bachelor of Science from the University of Plymouth and a Master of Science in mining geology from the Camborne School of Mines.

    Want to read more Mining Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Tom Hayes: I own, or my family owns, shares of the following companies mentioned in this interview: None. Edison Investment Research's disclosures are available here. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Mining Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Mining Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
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    Jul 15 4:58 PM | Link | Comment!
  • Thomas Schuster's Key Factors For Investing In Precious Metals

    Consulting Mining Analyst Thomas Schuster looks at the longer term in mining. He is bullish on gold but cautions that we won't see an end to the bear market in precious metals equities until financing again becomes readily available. In this interview with The Gold Report, the publisher of the "Rocks To Riches" research reports presents key factors for investing in gold, silver and niobium that will aid investors in riding out the storm.

    The Gold Report: The prices of gold and silver soared after 2008, suggesting a flight to safety by investors. What does the recent volatility in gold from $1,250/ounce [$1,250/oz.] to $1,325/oz. and now down to near $1,300/oz. indicate?

    Thomas Schuster: Gold is naturally volatile and reacts constantly to positive and negative market stimuli. I don't believe that the recent uptick in the gold price is comparable to the start of the gold run that occurred after the financial crisis in 2008.

    I look at how producers are doing. Average gold grades are lower, costs are higher, and overall production from the majors is declining. Gold reserves need to be replaced with quality ounces. I believe the gold price is finding a new base and will trend upward over the coming years. I'm bullish on gold.

    TGR: The tremendous rise in the equities markets, which shows no sign of ending, has not benefitted gold and silver stocks. Why not?

    TS: People tend to invest in trends. The general market trend has been rising, so investors have been chasing that trend and making money off it. On the flip side, the mining markets have been trending downward for years, so unless you have speculated on the dark side, it has been a difficult time for mining investors. When we start to see a steady uptrend in the mining market, I believe it will come back with a vengeance. Long and deep downturns are usually followed by spectacular upturns.

    TGR: The bear market in gold and silver equities goes back to April 2011. When can we expect this sustained upturn?

    TS: I think we're currently in a holding pattern. The gold price has been fluctuating around $1,300/oz. and it's now summer. Sell in May and go away, as the saying goes. Brokers are looking forward to the fall and a better investment climate then.

    TGR: For 20 years, we've had the Internet, which has ushered in a 24/7/365 news cycle. So isn't it odd that the mining industry continues to operate on the basis that nothing significant can be expected in summer?

    TS: Well, a great deal of exploration occurs in the summer. While investors take their holidays, the geologists are out in the field, spending money that was invested in their companies in the winter and spring. Typically mining stocks don't respond to news in the summer unless something significant is released. We tend to get more news flow in fall after the field season, and that's when people see opportunities to invest. That's also when investors tend to be more receptive to additional financings.

    TGR: Should investors make decisions based on an assumed future gold price of roughly $1,250/oz. or is it now reasonable to invest based on the assumption of significantly higher prices?

    TS: That depends entirely on their investment philosophy. If investors look to exploit volatility and short-term trends, they should examine current gold prices and market sentiment. However, longer-term investors should examine longer-term price forecasts. For instance, if they want to invest in a company with a two- to three-year path to production, they should look to what gold will be worth when that company begins producing.

    TGR: What's your investment philosophy?

    TS: I'm a longer-term investor, so I consider the longer-term trends. It's much more difficult to predict short-term volatility. I like to identify good companies with a good core asset. As the company advances that asset, it should gain in value.

    TGR: In today's market, what are the qualities that distinguish those mining companies that are poised for success?

    TS: Good management is always a key factor. These management teams find projects that have the right risk/reward ratio. Whether it means finding projects close to infrastructure in stable, mining-friendly jurisdictions or finding projects with the potential for tremendous discoveries in currently out-of-favor jurisdictions, good management will know what works in different market conditions.

    TGR: Must good management always include executives who have hit home runs in the past?

    TS: Not necessarily. You just need to identify smart people who can recognize and exploit opportunities. I went to school with a fellow called Patrick Anderson. He and his partner, Keith Barron, positioned themselves in a down market to acquire prime, underexplored ground in Ecuador. They had a pretty much unknown team, but they discovered the 13.7 million ounce [13.7 Moz] Fruta del Norte gold deposit, which was sold for $1 billion [$1B] in 2008.

    TGR: How long should investors hold on to underperforming companies if their underlying fundamentals are good?

    TS: I consider a one to three year period when determining whether investors are getting a proper return on investment in the junior market. If a company has met its benchmarks after one year and looks set to achieve its goals, you should hang on to it. And then you should continue to re-evaluate for up to three years, always considering what realistic potential gain can be had from this stock. When you get that, you should take your profit. You never lose money taking a profit.

    TGR: You place a great deal of importance on the concept of enterprise value [EV]. Could you explain this term and how it affects your valuation of mining companies?

    TS: Because junior exploration companies don't make money, proper financial valuations are pretty much impossible, so we have to look at other ways to value them. EV looks at what the market is willing to pay for a company after its debts are paid and its cash position is taken into account. EV is often divided by the number of ounces or pounds of metal resources in the ground, and this number tells investors how the market values resources by one company as compared to its peers, and whether it is comparatively undervalued or overvalued.

    Companies with low EVs are getting little value for their projects, and those on the cusp of making significant discoveries or publishing large resource estimates present good opportunities for investors.

    TGR: Now that the Supreme Court of Canada has granted title to Indian groups that can demonstrate continuous use of Crown land, can British Columbia still be considered a mining-friendly jurisdiction?

    TS: British Columbia is one of the most highly regulated jurisdictions in Canada, but at the end of the day you can still go to sleep knowing you will own your project in the morning. Successful mining companies know that they must respectfully engage First Nations early on and build good relationships in order to foster mutual understanding and trust that will benefit all parties involved. The Supreme Court ruling re-enforces that reality and hopefully it will provide a road map for negotiating as opposed to litigating.

    TGR: Quebec has a new Liberal government, replacing the Parti Québécois. What are the implications for the mining industry?

    TS: The Liberal government is on record as being more mining friendly. The proof will be in the pudding.

    TGR: Argentina, like Canada, has a federal system. How important is that to mining?

    TS: A federal system is important to providing a unified mining code, but as in Canada, some Argentine provinces are more favorable toward mining than others.

    Jurisdictions change and when they change favorably they provide great investment opportunities. I can remember when Colombia was a terrible place to work. Now, it is significantly better and subsequently many new discoveries have been made there. Argentina is not regarded very highly at the moment, but there are indications that the political climate could be improving. That sets the stage for opportunity.

    TGR: Which specialty metal particularly interests you now?

    TS: Niobium, which has a very good outlook. It's used in the form of ferroniobium to produce lighter, stronger steel. For example, $9 worth of niobium in a car reduces its total weight by 100 kilograms, increasing fuel efficiency by 5% and lowering CO2 emissions. The U.S. doesn't produce any. A Roskill Global Commodities Market Report estimates a compound annual ferroniobium growth rate of 3.74-7.32% through 2017.

    TGR: Only three mines produce niobium, and 95% comes from Brazil and 5% from Canada. Can these mines meet short-term niobium demand?

    TS: They could meet near-term demand, but the issue is diversity of supply. With 90% produced by one company in Brazil, any kind of natural disaster, strike or governmental disruption could cause quite a hiccup in the market. As the U.S. considers niobium a strategic metal, it would prefer some American production.

    TGR: What are the reasons for long-term investors to be optimistic about gold and silver stocks?

    TS: I've been through a number of cycles, and nasty downturns are always followed by exciting turnarounds. People will always need metals, and metals are not renewable. I read an interesting quote recently, "Mines are value destroyers," referring to the fact that the metals need to be replaced as they are blasted from the ground. New sources must be found to replace what's being mined. The only way to find these new metal sources is through extensive exploration, and that requires risk capital. So we must wait for favorable market conditions to return. In the meantime, there are some great opportunities out there you can invest in now to get yourself in ahead of the rush.

    TGR: Thomas, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Gold Report and can be read in its entirety here.

    Thomas Schuster is a consulting mining analyst in Vancouver. He holds a Bachelor of Science in geological sciences from the University of Toronto and began his career in the Timmins Camp in Ontario. A reporter at the Northern Miner for seven years, he produces an equity research report, "Rocks To Riches," which is distributed to industry brokerage firms.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor.
    2) Streetwise Reports does not accept stock in exchange for its services.
    3) Thomas Schuster: I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jul 14 3:55 PM | Link | Comment!
  • Chris Mancini's Keys To Successful Gold Stock Picking

    Chris Mancini, an analyst with the Gabelli Gold Fund, spends his days finding value in gold equities-and he thinks he's found a recipe for success. Take a long-term outlook, add excellent management, fold in a great project in a quality jurisdiction with low-cost minable ounces in the ground at a huge discount to the spot price-et voila! Mancini calls this "optionality" and in this interview with The Gold Report he says that equities with optionality will not only survive the downturn but also provide excellent leverage to an inevitable upward move in the gold price. Check out some rising names in the Gabelli Gold Fund.

    The Gold Report: Cash has flown out of gold funds and into non-gold equities during this bear run in gold. What's the current Gabelli Gold Fund pitch to investors?

    Chris Mancini: Gold should be a long-term allocation to everyone's portfolio. Owning gold is an insurance policy against the malfunctioning of the world's monetary system. The current actions of the world's central banks are unprecedented. Any investor who is unsure of the ultimate outcome of these actions should have a larger percentage of his or her portfolio in gold.

    We recommend that investors have a certain portion of that gold allocation in gold stocks. Gold stocks provide income, accretive growth and "optionality." That optionality is gold in the ground at a discount. Right now investors can buy gold in the ground, in some cases, at less than $100 per ounce [$100/oz] and if gold goes to $2,000/oz then they could see that optionality manifest itself in a big increase in the price of the stock.

    TGR: So it's possible to have security and performance in the same fund?

    CM: If you pick the right stocks and have that optionality and gold goes up, the performance of the fund will be really good. By the same token, if gold goes down and you own some of these stocks, the price of the fund will most likely go down. In owning a gold fund like ours investors are getting exposure to gold and leverage to a move in the gold price.

    TGR: Gold witnessed modest safe-haven and inflation-hedge demand in June after U.S. Federal Reserve Chairman Janet Yellen said that low interest rates are here to stay. Should gold investors expect anything more than a temporary upward trend in gold prices?

    CM: That depends on the expectation in the markets of where real interest rates are going. Yellen stated that interest rates would be lower for longer but that was coupled with data that showed that inflation in the United States could be accelerating. That shows that real interest rates might become more negative than they are now. And that means that holding cash is a money-losing proposition because cash is losing purchasing power. If interest rates become more negative, that will be positive for gold and it won't be a temporary phenomenon.

    TGR: What's your price target for gold through the end of 2014?

    CM: We don't have one. Our view is that the price of gold is going to be higher at the end of 2014 than it is now. And it's going to be higher in 2015 than it will be in 2014 and we're positioning the portfolio to take advantage of that.

    TGR: What impact have redemptions from gold exchange-traded funds [ETFs] had on the gold price?

    CM: Last year 900 tons came out of gold ETFs and it was a huge contributing factor to the price of gold declining by 27%. Total annual gold demand is roughly 4,200 tons so if the supply from ETFs goes to neutral then the supply/demand balance this year should shift in the other direction. This year we've seen a tiny negative outflow from ETFs, but they've been pretty flat. Inflows into ETFs would be a big positive for the price of gold.

    TGR: How do the inflows and outflows in your fund compare with 2013?

    CM: At the beginning of 2014 we had inflows into the fund, and then they flattened out. When we had the big one-day pop in the gold price in June when gold went up $44/oz, we actually had outflows from the fund. That might be telling us that we have some people who are playing gold for a quick bounce and aren't looking at gold from a long-term perspective.

    TGR: A recent Gabelli Gold Fund report suggests that Russia may want to diversify its foreign exchange holdings and could look to gold.

    CM: Russia has around $500 billion [$500B] of foreign exchange reserves in the form of U.S. dollar treasuries and euro denominated bonds, largely German, French and some other smaller European country bonds. If there is further geopolitical unrest in or around Russia and increased rhetoric from countries like the United States, Germany, and France meant to impede Russia from taking action in places like Ukraine, Russia might get the sense that the United States and other countries in NATO might impose financial sanctions on Russia.

    If broad financial sanctions are placed on Russia, then there could be a question as to whether Russia would be repaid by the countries that they've lent money to. In a new Cold War scenario, you would think that Russia would want to diversify out of the bonds of those countries and into something else. What else is there? Gold is an answer. Gold is no one's liability.

    TGR: Where is China in the gold demand picture?

    CM: Chinese consumers are the largest buyers of gold in the world. That's related to their fear of holding their currency in the bank or holding it in their mattress. There's a significant amount of inflation in China, so real interest rates are negative. It behooves the Chinese to diversify out of cash, which is losing its purchasing power. Holding gold is a way to insure against inflation or some kind of issue with the Chinese banking system.

    China has around $3.7 trillion of foreign currency reserves. The People's Bank of China also might want to diversify. If China were to diversify 10% of its foreign currency reserves, $370B, that would be a huge amount of gold to buy, or roughly 3.5 years of the world's total mined supply of gold.

    TGR: A significantly higher gold price would float all boats. But until that happens, what's your method for picking gold stocks?

    CM: We try to own the companies that can survive and even benefit from this downturn and then prosper in the upturn. We look for companies that have good assets, good management and a good valuation. Good assets alone should allow the companies to survive; their management teams should help them prosper. We're looking to buy these companies at reasonable prices.

    TGR: Do you visit mines and mining projects?

    CM: Yes. I was recently in Quebec's Abitibi region where I visited Agnico-Eagle Mines Ltd.'s (NYSE:AEM) Goldex and LaRonde mines, and a couple of others.

    TGR: Will Agnico ever recoup its capital costs at Goldex after the mine's underground instability issues?

    CM: Probably not its initial capital costs. Agnico should be able to produce 100,000 ounces [100 Koz] a year for a few years at an all-in cost of around $1,000/oz. To get those ounces the company had to spend $80-100 million [$80-100M]. It will more than recoup that incremental investment. The company has done a good job of making the best of a bad situation.

    TGR: What else did you visit in the Abitibi?

    CM: I also visited AuRico Gold Inc.'s (NYSE:AUQ) Young-Davidson mine. The big thing to take away from the Abitibi is that it is a mining region. There are families there who have been mining for generations.

    TGR: What stood out at AuRico's Young-Davidson?

    CM: The ore body is similar to Goldex and is amenable to low-cost bulk mining but the grade is a lot better than at Goldex. It's a wide ore body with big stopes, so the company has put the infrastructure in place to allow the deposit to be mined cost effectively. The production shaft has been sunk; development work in the upper mine is mostly complete. AuRico's goal is to go from 2,700 tpd to 4,000 tpd, and then eventually to 8,000 tpd once the lower mine is fully developed.

    TGR: Young-Davidson produced about 120 Koz last year and AuRico has issued guidance that could be as high as 160 Koz in 2014. Is that realistic?

    CM: Yes, that's realistic. The ultimate goal is to get to around 230 Koz/year on a sustainable basis. Once AuRico gets there unit costs should decline to below $500/oz from around $700/oz because to get that incremental tonnage it won't have to add as many underground miners. The mine should reach full capacity by the end of 2016.

    TGR: Do you have other positions in equities with projects in Nevada?

    CM: We own Newmont Mining Corp. (NYSE:NEM) and Barrick Gold Corp. (NYSE:ABX). A lot of the value of those two companies is in their Nevada operations. I think Newmont and Barrick should merge and then spin off their combined Nevada operations into what would be one of the biggest gold mining companies in the world. Call it Nevada American. It would be huge. The market would love it.

    TGR: Some of your largest positions are in royalty companies. Tell us about those.

    CM: We have big positions in Royal Gold and Silver Wheaton Corp. (NYSE:SLW). We also own Osisko Gold Royalties Ltd. (OTC:OKSKF) [OR:TSX], a spinout from the Osisko takeover by Agnico-Eagle Mines and Yamana Gold Inc. (NYSE:AUY) [YRI:TSX:]. These companies are perfect examples of being able to survive the downturn and benefit from it.

    TGR: What are some royalties that give Royal Gold and Silver Wheaton leverage to a dramatic rise in the gold price?

    CM: Both companies have royalties on Barrick Gold's Pascua-Lama gold-silver-copper project on the border of Chile and Argentina. Royal Gold has a sliding scale royalty that at this gold price would be 5.23% on the gold on the Chilean side of Pascua-Lama, whereas Silver Wheaton has a stream on 25% of the silver.

    It would cost another $4B for Barrick to build Pascua-Lama, even if it gets the environmental permit and green light from the government, but at $1,300/oz gold and $21/oz silver the project is not viable. Once it's built it should produce 800 Koz/year gold at zero dollar cash costs [after silver byproduct credits] and should have a 20-year mine life. It's a great project at a higher gold price.

    TGR: What's one thing a gold investor should know about the current market?

    CM: The best thing to keep in mind is that even though this market is extremely volatile, you're in it for the long term. It was very volatile to the downside last year; so far this year it's been volatile to the upside. Don't lose hope or exit on a quick run up. You're getting insurance at a relatively cheap price by owning gold and gold mining companies.

    TGR: Buy and hold still works?

    CM: Yes, if you have the stomach for it.

    TGR: Thanks, Chris.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Chris Mancini is a research analyst for the Gabelli Gold Fund, specializing in precious metals mining companies. He has over 15 years of investment management experience, including research analyst positions at Satellite Asset Management and R6 Capital Management. Mancini earned a bachelor's degree in economics with honors from Boston College and is a holder of the CFA designation.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit ourStreetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Chris Mancini: I own, or my family owns, shares of the following companies mentioned in this interview: Agnico-Eagle Mines Ltd., AuRico Gold Inc., Royal Gold Inc., Barrick Gold Corp., Osisko Gold Royalties Ltd. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. The Gabelli Gold Fund holds the following companies: Agnico-Eagle Mines Ltd., AuRico Gold Inc., Royal Gold Inc., Barrick Gold Corp., Osisko Gold Royalties Ltd., and Silver Wheaton Corp. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
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